Exhibit 10.2: Potential Opinion Leaders’ Roles in Culture Change 257 Exhibit 10.3: Survey Results 258 Exhibit 10.4: Significant Correlations Between Specific Critical Behavior Items and Three Performance Metrics 259 BIBLIOGRAPHY 260 ABOUT THE CONTRIBUTORS 260 OVERVIEW What’s beyond “white water?” That was the term used to characterize the com- petitive challenges faced by companies a decade ago. Today, the rapids are shal- lower, the holes deeper, the boulders bigger, and the current faster. Not only is winning in this environment harder, but losing puts a company at greater risk of making a spectacular crash. This was never more clear than in the defense industry, where the end of the cold war challenged defense contractors to win in fewer contract opportunities (for fewer dollars) . . . or leave the scene. The industry consolidation of the 1990s made the white water froth.“Win or die” wasn’t a saying—it was a reality. For a company like Lockheed Martin Tactical Aircraft Systems (LMTAS), that meant winning competitive contracts in world markets for F-16 fighter jet sales against some of the best competition worldwide. As if that wasn’t enough, in 1997 the defense department announced that LMTAS was one of the two final- ists in competition for what was expected to be the last manned fighter jet con- tract the U.S. government would give—a $200 billion dollar contract with a thirty-year life . . . and it was going to be a winner-take-all contract. This was the Joint Strike Fighter (JSF) contract competition, and the competition was not only winner-take-all, but loser-leave-the-stage. For LMTAS, losing this contract would put a horizon on the company’s very existence—even if it won F-16 sales in world markets, F-16 sales were not a growth business, as the JSF would even- tually become the product of choice on world markets. This case study reports how Dain Hancock, president of LMTAS, recognized and responded to those challenges by gaining rapid support for change in what for decades had been a fiercely rigid organization. His leadership not only posi- tioned the company to win worldwide F-16 sales, but more important, to win the JSF contract—assuring the survival and prosperity of the company long into the twenty-first century. We’ll use the metaphor of a fulcrum and lever to describe the strategy that Hancock eventually used. His first challenge was to shape the fulcrum—to give relevance and focus to necessary behavior change. He needed to make a clear, succinct, and compelling business case for behavior change. That case needed 240 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE cart_14399_ch10.qxd 10/19/04 12:25 PM Page 240 to articulate the behaviors that were critical to business survival—and it had to do so in a way that defied contradiction. As we will see, the fulcrum was not enough. Although Hancock did all the right things to demonstrate the absolute relevance of behavior change, nothing happened. What he still lacked was a lever. The lever is what extends the influ- ence of a handful of senior leaders throughout to organization to influence day- to-day behavior change. In the algebra of organizations, leaders represent the numerator while all others combined form the denominator. In this configura- tion, change can look like a mathematical impossibility. Discouraged leaders can wonder what a relative few vision-bearers can do to drive change in an organization that outnumbers them a thousand to one—or more. The senior leaders at Lockheed Martin produced no real change until two things occurred. First, they articulated a concrete role for both formal and infor- mal leaders (as teachers and as partners, respectively) in influencing change. This turned out to be an important change lever. And second, they implemented a method for holding themselves accountable. Only when senior leaders clari- fied their accountability in tangible ways and grasped these two levers did they gain traction against overwhelming organizational inertia and begin to produce real change. Note that by holding themselves measurably accountable for results and implementing these two change levers, they accelerated changes that often take the better part of a decade to occur in large companies. Evidence reported in this case shows their impact within three years, and, what is important, this success was among the factors that enabled LMTAS to win the largest contract in their industry’s history—and to remain a force in the aeronautics industry. BACKGROUND When Dain Hancock was named company president in 1995, it appeared he was assuming the catbird seat. The company had a large worldwide sales back- log for F-16s. In the previous two years, they had dramatically reduced costs at the same time that base production was decreasing, a first in the industry. The major customers were enthusiastic about the company’s record of quality improvements, and—perhaps most important—the facility had proven itself to be a remarkable “cash cow” for Lockheed Martin. But looks can be deceiving. As the former vice president of the company’s largest product line, Hancock was aware of a far different reality: the volumi- nous business backlog was shrinking rapidly, with a three-year lead time for new orders and no F-16 production scheduled on the books after 1999. The factory was still limping along with 1970s vintage manufacturing technology— not surprising, since the plant had suffered from a lack of capital investment for several years. During the tenuous early 1990s in the defense industry, the LOCKHEED MARTIN 241 cart_14399_ch10.qxd 10/19/04 12:25 PM Page 241 previous owners’ corporate strategy had become “milk the backlog and spend as little as possible.” In addition, the workforce was aging, with most of the younger engineers having fallen victim to mass layoffs earlier in the 1990s and with no new hiring at the facility for almost eight years. In short, the business horizon looked bleak. A RAY OF HOPE? The major product line for the company—the F-16 Fighter Jet—was also begin- ning to age. Consolidation and post-Cold-War contraction of the industry left little room for aging products. For this company, the message of the market- place was clear: win the next major fighter program . . . or die. Shortly before Hancock assumed the president’s office, a competition was announced for the Joint Strike Fighter—a major program with pre-purchase commitments from the U.S. Air Force, Marines, and Navy, as well as the U.K.’s Royal Air Force and Navy. Securities analysts hailed the announcement as a harbinger of which of the key companies in this industry would survive into the twenty-first century. Hancock knew that if the company failed to win this competition, all he would preside over was, at best, becoming a subcontractor to the winning company or, at worst, the organization’s demise. Since the contest was announced as winner-take-all, the latter seemed like the more likely outcome. As Hancock considered what it would take to develop a bold new product against world-class competitors, he quickly concluded that the company’s 12,000 employees faced another tough tradeoff: change or lose. Past mindsets would run up against aggressive affordability goals and the necessity of creat- ing the complex product for a wide range of domestic and international cus- tomers through long-distance partnerships with a host of other companies. It was clear that old ways of thinking and doing business would not suffice. In the coming months, the president and his senior staff would try to sell a message to the workforce that changing the culture was a survival-level issue. In a straight-talking address, Hancock told the workforce, “It may not be clear to many folks, but our company damn near died last year . . . and the primary rea- son was our culture! We have been so inwardly focused and have inhibited new ideas to the point that we were headed down and out.” A blunt statement by Darleen Druyan, the Air Force’s acquisition chief, helped Hancock put a sharp point on his message. After thousands of F-16 purchases, it might have been easy for the Fort Worth crew to assume the Air Force was in their corner. Druyan made it clear that even the Air Force wondered about whether Lockheed Martin could compete in this new kind of program when she said, “This competition is not about an airplane. It’s about a management team.” 242 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE cart_14399_ch10.qxd 10/19/04 12:25 PM Page 242 A CULTURE OF RESISTANCE Hancock knew the culture well. He had worked his way up through the ranks under various owners of the facility. Over time he had watched as good ideas, whether incremental or monumental, were smothered while birthing. As pres- ident, he found his schedule filled with appointments with passionate agents of change who used him as a sort of bodyguard to keep from being taken out by those who were threatened by their ideas. For example, Hancock initiated a Six Sigma—or “lean manufacturing”—effort to help drive major improvement in manufacturing processes, which had changed little since the mid-1970s. He also hoped to show the JSF decision mak- ers by this effort that Lockheed Martin could rival their competitor, Boeing, in innovative management practices that would lead to world-class quality, on- time delivery, and low cost production. The Six Sigma effort was a critical way of demonstrating that capability. And yet, a year into the effort there was little to show beyond a few color- ful displays and a couple of pilot projects. Although the uninitiated would think that the president’s approval would be sufficient aid and comfort to sus- tain a strategically critical program like this one, the culture had perfected a strategy to deal with just such contingencies: slow rolling. When authority was lacking to kill something outright, lower-level managers found ways to deliver death in the same way an alligator kills its prey: it embraces it—after a fashion. In fact, it drags it under water and slowly rolls it, over and over, until it drowns. Managers at Lockheed Martin responded to Six Sigma the same way. They openly applauded the new ideas, dragged them back to their departments, then starved them of attention, hoping senior leaders would eventually lose interest in the failed initiative and move onto the next program du jour. In spite of Hancock’s endorsement, little initiative was taken to implement Six-Sigma ideas. Most managers gave only lip service to Six-Sigma goals. If they did assign staff to special projects, it was not their best and brightest, but rather their “surplus.” And breakthrough recommendations arising from training ses- sions gathered dust in in-boxes while the “real work” got done. Month by month, the senior staff would write articles for the company newsletter, speak at the beginning of another training session, or gather all the managers and deliver another speech about the importance of the effort. In short, Hancock and his staff would find some way to apply brute force to breathe a little more life into the program. Through this and dozens of other experiences, Hancock became con- vinced that for every innovative effort he fought to rescue, there were a hundred promising ideas that must be dying before they left the drawing board. LOCKHEED MARTIN 243 cart_14399_ch10.qxd 10/19/04 12:25 PM Page 243 SHAPING THE FULCRUM BY DEFINING CRITICAL BEHAVIORS Hancock began attacking the problem of changing this culture like any good engineer. He clearly defined the kinds of behaviors that would cut away the webs of resistance that were choking innovation. We (the authors) were engaged by Hancock as consultants and advisors. Over a period of months, with our help, he and his senior staff went through a process of interviewing employees, documenting stories, and writing papers that helped them see how their culture affected their ability to meet their business challenges. Our goal was to identify critical behaviors. These, in our view, were the two or three behaviors that would first, have an obvious positive impact on busi- ness performance; and second, produce a domino effect by influencing many other behaviors to change. We reasoned that the typical approach to culture change—long lists of abstract values or dozens of desirable behaviors—would lead to failure. Hancock’s objective was to pick a critical few that could clearly be shown to drive business performance—and focus all of leadership’s energy on those. The trick was to pick the right few. After conducting focus group interviews with over six hundred employees, the senior staff began to discern patterns in the success and failure stories they heard. They began to see that a handful of negative behaviors were at the nexus of every painful story of stifled change and choked creativity. In addi- tion, in the areas of the company where innovation thrived, a few key behav- iors were universally present. For example, interviews with the few Six Sigma “pockets of excellence” turned up a few behaviors that always differentiated these areas from the rest of the organization. Most of these behaviors were crucial conversations that enabled Six Sigma progress when they were han- dled well, or stalled it when they were either avoided or handled poorly (see Exhibit 10.1). Through this study process, senior leaders came to conclude that candid and open communication about specific high stakes subjects was a critical behav- ior. They concluded that if they could positively influence the quality of these crucial conversations, these conversations would have a “pulling effect” on other, nonproductive behaviors. Thus, open communication about these crucial topics became a major part of the fulcrum of the change effort. In addition to open communication, two other critical behaviors emerged from this process. The first was called personal engagement and referred to “taking personal action to unblock obstacles that prevented effective performance.” The third was called sense of urgency, and, as implied, was about “acting when the need existed rather than ignoring issues that needed to be addressed or esca- lating those issues to others who would have to address them.” 244 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE cart_14399_ch10.qxd 10/19/04 12:25 PM Page 244 POSITIONING THE FULCRUM BY CLARIFYING ACCOUNTABILITY Hancock’s experience with the culture led him to conclude that if culture change was to be taken seriously he needed a credible way of holding senior leaders accountable. He was doubtful of the traditional “activity” measures associated with soft change efforts. For example, leaders were perfectly capable of “slow- rolling” the Six Sigma effort because they were measured only for things such as the number of people trained and the number of pilot projects implemented. In this case they began with the end in mind. Since what Hancock wanted was real behavior change, he would hold senior managers accountable for that and that only. A brief survey was developed to measure the perceptions of change in the critical behaviors across the organization. A 10 percent goal was set and the top two levels of leadership were given eighteen months to influ- ence change. Incentive compensation was linked directly to meeting this measurable goal, and, not surprising, change was on the radar screen for senior leaders. A HOPEFUL BEGINNING We had the senior staff begin their journey by asking themselves, “What drives old behavior?” and “What will it take to foster the new behaviors?” As a result, they put in place a number of change initiatives. These initiatives included changing the values embedded in the existing appraisal system, improving dys- functional aspects of the organization design, and expanding the leadership feedback to reflect the critical behaviors. By early 1998, the senior staff had a clear and measurable goal, a sound way of measuring change, incentive pay tied to executive-team success, and a robust plan. After months of deliberating, Hancock announced the formal beginning of what came to be called “Workforce Vitality.” And nothing happened. Well, actually, teams were formed to study and make recommendations to move these initiatives forward, lots of meetings were held, presentations were made, surveys were conducted, and easy, low-impact, employee-friendly changes were made. But survey scores and anecdotal evidence showed that nothing of substance was changing. That is, if one didn’t count an increase in cynicism. Hancock began to conclude that Workforce Vitality, like other inno- vations, was being “slow-rolled.” In the beginning, Hancock used the traditional top-down approach of getting things done, and he made an enormous effort to communicate the need for change and the change strategy to the three levels immediately below the senior LOCKHEED MARTIN 245 cart_14399_ch10.qxd 10/19/04 12:25 PM Page 245 staff in monthly “briefings.” He demanded progress reports, held review meetings, and even promised to remove those who weren’t on board. Unfortu- nately, the president spent most of his time on the road in a high-level sales role—promoting F-16 purchases all across the globe. That left a lot of time for nothing to happen. As it became painfully clear that there was a lack of grass- roots support for the change effort, he came to believe that irrespective of those institutional changes he could use brute force to implement, behavior would not change without a core of support from the ranks. The prior culture was deeply entrenched, and the hierarchical “cascade” approach to driving change was met with perfunctory compliance that whipped the masses up into little more than a yawn. Nothing happened until leaders began to look for leverage in an entirely dif- ferent way. Rather than ratcheting up the direct efforts of senior leaders to plead for change from the masses—an impossible influence challenge given the sheer number of people in the organization—we encouraged them to work instead to influence the influencers. To do so, they engaged two groups with irresistible day-to-day social influence throughout the organization: first, they defined a clear change leadership role for the formal chain of command; and second, they identified and involved informal leaders—the opinion leaders from throughout the organization. LEVER #1: FORMAL LEADERS BECOME TEACHERS On our advice, Hancock and his team stopped diffusing all of their attention on the 12,000-person organization. Instead, they were encouraged to spend 40 per- cent of their Workforce Vitality attention on influencing the formal chain of command to engage in fostering the critical behaviors. To begin with, senior managers ensured that their direct reports all under- stood the absolute necessity of changing behavior as an enabler of a JSF win. Then they gave them a specific method for influencing behavior in their own direct report teams. They would become teachers. Over the next few months every leader in the organization held biweekly training classes with their direct reports. During these Single Point Lessons, they would teach concepts and skills for improving the quality of the conversations identified in the Workforce Vitality critical behaviors. Every two weeks, senior managers would teach a new concept to their direct reports. These students would then become teachers. After they taught the concepts to their direct reports, the cascade continued until everyone in the organization was taught. The initial response from the chain of command to the idea of teaching ranged from stunned silence to open revolt. Managers and supervisors were appalled that they were being asked to teach. They cited two common reasons for this 246 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE cart_14399_ch10.qxd 10/19/04 12:25 PM Page 246 concern. First, they thought teaching should be the job of professionals—not engineers or plane-builders. Second, many asserted that people would widely dismiss the new skills as unrealistic because their teacher (that is, their boss) was a raging example of the opposite behavior. Time turned both of these concerns on their heads. For example, research into areas that showed significant improvement in critical behaviors demon- strated that there was almost no relationship between the skill of the teacher and the degree of change that resulted from the instruction. The best predictor of change was not what happened in the training, but the dozens of sponta- neous conversations that happened between training sessions, where leaders encouraged their direct reports to use the skills they had learned earlier and where direct reports reminded leaders of their need to use those same skills as well. By becoming teachers, leaders had placed themselves in an advocacy role for the critical behaviors. As a result, they naturally seized opportunities to coach people in day-to-day interactions that they would never have recognized had they been relieved of this role by professional trainers. So while the qual- ity of training may not have always been stellar, the quantity of change that resulted from having leaders teach was far beyond what typically occurs when outside professionals are responsible for instruction. The second concern—that leaders who taught one thing but exemplified another would undermine the effort—likewise proved a false concern. In fact, the areas that experienced the greatest degree of change were those where the leaders themselves had to change the most. As leaders taught, their most atten- tive students were themselves. In the process of preparing to teach, many became more convinced of the relevance of the new behaviors. As they came to believe the behaviors were important, those who were the worst offenders found themselves in a sticky situation. They felt excruciating dissonance when they taught one thing but modeled another. Thus, many of the “worst offend- ers” were the ones most likely to use the training forum to acknowledge their own mistakes. They were also some of the first to make visible attempts to improve. And with these leaders, even small adjustments to align their words and their deeds were immediately noticeable by their direct reports. A spillover benefit was that employees who saw even modest changes in their boss saw the entire culture change initiative more favorably, thus encouraging them to make changes in themselves. LEVER #2: INFORMAL LEADERS BECOME PARTNERS In addition to engaging the management chain, we advised senior leaders to engage informal leaders—people whom students of change call opinion lead- ers. Opinion leaders are those whose words and actions carry great weight in LOCKHEED MARTIN 247 cart_14399_ch10.qxd 10/19/04 12:25 PM Page 247 the minds of their colleagues. To coin a phrase, when they speak, people listen. Hancock’s team was hopeful that this strategy would invert the ratio that had augured against them. Research on how change diffuses encouraged them to think of this subset of the population (representing from 5 to 10 percent) as their primary target for influence. Consultants to the company suggested that these five hundred or so people, if convinced and engaged, were the key to gaining more rapid support of the remaining 11,000ϩ employees. To the senior staff this was a breakthrough idea. Influencing five hundred people seemed a much more doable task than over 12,000 had been. From this point forward, senior leaders would spend 40 percent of their Workforce Vitality efforts with this powerful group—hoping that they would in turn bring influence to bear with others (see boxed text on Everett Rogers). We identified opinion leaders in a rather straightforward way—by asking survey respondents to identify up to three people whose opinions they most respected. A list of persons whose names were mentioned frequently was cre- ated. This proved to be an easy and reliable identification method. The names were given to willing vice presidents who agreed to pilot an “opinion leader engagement strategy.” One such person, Bill Anderson, the successor to the president’s previous job as vice-president of the F-16 program, was one of the first to engage opinion leaders. Since the primary theme of the critical behaviors was candid dialogue about crucial subjects, he reasoned that engaging regularly with this influential group in a way that demonstrated they could dialogue about anything would send a powerful message to the rest of the organization. So he brought them together in groups of fifty to a hundred and laid his cards on the table. His first step was to help them understand the role they already played as informal leaders. Anderson met with the groups of opinion leaders in two-hour orientation sessions. During these two hours Anderson worked to sell his busi- ness case for change. He helped opinion leaders see how past behavior had cost—and in the future could kill—the company. He told the opinion leaders how their peers had identified them (a tremendous compliment) and described potential roles they could play in supporting the change. Anderson made it clear that their involvement was voluntary, and that opinion leaders were not meant to become management cronies, but independent partners in change. He pledged to support of their efforts and offered to be available for dialogue on any topic of importance to them. At the conclusion of each session, he asked for interested persons to volunteer to attend an opinion leader summit, where they would work together to define ways to create change in the organization. The follow-up summit allowed opinion leaders to dialogue with their senior leader about the need for cultural change, develop skills for positively influ- encing others, and identify issues that most needed to be attacked. Opinion 248 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE cart_14399_ch10.qxd 10/19/04 12:25 PM Page 248 leaders initially served as advisors to Anderson’s senior staff in reviewing cul- ture change strategies, and as conduits of meaning and intent to the rest of the organization by helping others understand more than any official communica- tion could ever explain about these strategies. For example, senior leaders decided to change pay policies to reflect a market- based, broad-banding model. As rumors of the changes leaked out, employee reaction was quick and negative. In the midst of the reaction, Anderson began meeting with groups of his opinion leaders for extensive conversations on the subject. In these sessions executives shared the business problems, the proposed solutions, and the inevitable tradeoffs they faced in any solution set. These dia- logues created change all around the table. Based on input from opinion lead- ers, executives modified plans. Opinion leaders, by seeing the positive intent of leaders and appreciating the complexity of the issues, changed their opinions. While the company emerged with a better plan, it also emerged with a hundred or so highly credible “in-the-trenches” leaders who helped explain reasons and issues more deeply than the senior staff could ever hope to in an audience of over ten thousand cynical people. The leadership lever seemed to be working. Although all opinion leaders began in this advisor-conduit role, many seized even larger leadership opportunities. Some helped formal leaders teach dialogue skills to their peers that supported the goal of creating a culture based on the critical behaviors. Others helped lead improvement efforts through Six Sigma events. Yet others took key roles in designing new performance appraisal, orga- nization design, and hiring and selection processes that would help improve Workforce Vitality (see Exhibit 10.2 for more opinion leader roles). This leadership strategy was proving so useful that Anderson began to meet monthly with a large group of opinion leaders. These meetings included candid dialogue about the state of the enterprise, progress of companywide improve- ment teams, and identification of barriers that needed to be addressed. CAVEATS Most innovations have a host of unexpected consequences. The company opin- ion leader strategy was no exception. Once word got out that formal leaders were engaging a special group called Opinion Leaders, some managers responded with defensiveness. Early rumors pegged opinion leaders as more promotable; others saw a conflict between opinion leaders’ work and the management chain. Yet others saw a lack of coordination between opinion leader groups. Because of a matrix-like organizational design (for example, engi- neers were both members of the engineering core and deployed to a business program), some opinion leaders were on the list for multiple vice presidents and LOCKHEED MARTIN 249 cart_14399_ch10.qxd 10/19/04 12:25 PM Page 249 . behavior change. He needed to make a clear, succinct, and compelling business case for behavior change. That case needed 240 BEST PRACTICES IN LEADERSHIP DEVELOPMENT. they put in place a number of change initiatives. These initiatives included changing the values embedded in the existing appraisal system, improving dys-